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FRANK GUIDO

Editorial: Employment needs more than GDP growth

Frans Bieckmann | March 12, 2014

The creation of more decent jobs should be central to economic policies. The prevailing assumption that GDP growth alone will generate more decent work is not valid. And it obstructs the creation of a society in which labour serves and dignifies both the individuals and the collective. Labour is more than a mere input for economic growth.

The creation of work – good, decent work – should be central to any general policy, be it national macroeconomic or financial policies in the rich countries, international policies, or development policies. Currently, the main focus concerning employment policies is on employability, or the individual jobseeker’s adaptation to the work supply, while other more overarching and adjacent policy areas that could create more decent jobs are neglected. GDP growth has become the sole goal that labour should serve, instead of vice versa: the growth of the economy serving the wellbeing of the people who contribute to that with their work. Implicitly it is assumed that it is the mistake of the unemployed, of the individual, that they don’t have work, hence the term ‘activation’ that is often used to describe measures to stimulate people. However, there is an equally important collective responsibility – for state and society – to establish full employment opportunities. Because work is essential for humans and their wellbeing.

Work can be defined as the daily activities of people to create their own lives, to earn sufficient money to not only survive, but to live their lives happily and to fully realize themselves. Work is the means to lift oneself out of poverty, to engage oneself with his environment and with society.

Therefore, GDP growth is not alone sufficient as a macroeconomic policy aim. Likewise, monetary stability – as important as inflation control indeed is – should not be the only goal of a finance ministry or central bank. Employment has to be central to any political programme and macroeconomic and financial policies. And the measurement of economic and societal progress should take into account the number of jobs created, the distribution of jobs and corresponding income, and whether those jobs comprise decent work and provide basic security.

An exclusive policy focus on social protection or on poverty reduction also does not suffice. It cannot be the task of ministries for social affairs or social protection schemes alone to compensate for the negative side effects of an economic policy. Cash transfers and other forms of social protection do not structurally alter the conditions under which decent work will be established. They are ‘redistributive’, in that they compensate people who don’t have access to decent and well-paid work. While redistribution is sometimes necessary, especially in times of crisis and increasing income inequality and precarity, it does not really alter the structural circumstances under which these socioeconomic problems originate. Therefore more transformative policies should be undertaken to structurally prevent unemployment or inequality. This concept is sometimes referred to as ‘pre-distribution’ (read for example this article by Jacob Hacker, who describes it there as “the way the market distributes its rewards in the first place” instead of “after-the-fact mopping up”). Pre-distribution structurally embeds decent work and less wage and wealth inequality in the design of economic policies and in the regulation of markets.

Currently this is not the case. Employment is often mentioned in economic discussions. However, in fact it is merely lip service that is being paid to employment. If you look under the surface, a lack of ideas about how GDP growth would create more decent jobs shows up in official reports. Yes, worries about the increasing unemployment in many parts of the world, including here in Europe, are heard everywhere. But what is the recipe according to the current economic and political leaders? In short, unemployment is a temporary problem caused by the economic crisis of 2007/2008. According to them, after the first stabilization years, GDP growth will recover. By further liberalizing European and world trade and increasing the flexibilization of labour markets, more growth will happen and automatically (sic) lead to more work. On the ‘supply side’ of labour, employability and ‘activation’ will make more workers fit for jobs, but wages have to be kept low to allow employers to compete with emerging economies.

As an example of this kind of logic, take the recent statement of the G20 about employment in which it states that the aim is to lift the GDP of the G20 countries with an extra 2%. The statement says that this growth of more than US$2 trillion would create significantly more jobs. Yet, there is nothing about how this growth would increase employment. Similar reasoning could be heard at a recent high-level seminar in Paris, ‘The Euro Area at a Crossroads: Policies for Growth, Jobs and Competitiveness’ (Watch the webcast), organized by the OECD and attended by several finance ministers including the Dutch chair of the Eurogroup, Jeroen Dijsselbloem. After expressing anxiety about the high unemployment, especially among youth, OECD Secretary-General, Angel Gurria (speech), stated that the Eurozone should go forward. Gurria says, “At the OECD we have been saying ‘go structural!’ for years. The document we are presenting today provides a structural reform ‘roadmap’ that can accelerate growth.”

But what does this ‘going structural’ mean according to the OECD? Reforming ‘labour and product markets’ would lead to productivity growth. This, together with more competition within the Eurozone and especially in the services sector, should create higher growth and supposedly more employment.

There are two sets of fundamental problems with this logic.

First, some fundamental theoretical assumptions underlying this neo-classical economic reasoning that prevails in the governmental offices and board rooms, are not valid anymore, if they ever were:

  • GDP growth automatically leads to more jobs. Like income, jobs are supposed to ‘trickle down’. But increasing inequality shows that this is not the case for income. And similarly with regard to unemployment, we face ‘jobless growth’, as is shown in the article, ‘Revaluing labour’ .
  • More free trade and international competition leads to more jobs. But evidence shows (read ‘Creating a global labour market’) that job destruction outweighs job creation, and newly-created employment today is usually rewarded with lower wages.
  • Higher profits lead to more jobs. In fact, financial globalization has, in many cases, led to the diversion of profits and shareholder revenues into speculative financial products and other non-productive activities. Productive investments that would lead to more employment, such as in SMEs, lag behind substantially.
  • Lower wages will lead to more employment. Emerging economies are competing with the developed countries in Europe and the US, and wages are supposed to be a determining factor. However, real wages have not grown significantly since the 1990s in many European countries, while GDP did (read ‘Profits without labour benefits’). This indicates that profits have increased relatively to labour wages. In the intensifying international competition, policy-makers and employers are focusing on labour costs, while other factors like energy or natural resources are rarely mentioned.
  • Increasing labour productivity, as shown in the article, ‘Profits without labour benefits’, will lead to more employment, via the higher growth that this generates through a stronger competing power. However, productivity in the Netherlands for example, is already one of the highest in the world, and has actually doubled in many countries in the past decade. This has not led to more work, or to higher wages. Again, the benefits of this growing labour productivity have gone elsewhere, instead of being invested in new job generation.
  • Better education and training to bridge the skills gap will lead to more employment. This assumes that there are enough jobs, but that it is just a matter of matching the two sides: increasing jobseekers’ ‘employability’ or ‘activating’ them to work. This may solve part of the problem, but there is also a structural lack of jobs. An additional problem is that technological and logistical change is moving so rapidly that skills are structurally running behind.
  • Technological innovation creates more jobs. There are many signs to the contrary, as machines or robots might take over a lot of work. Moreover, a lot of investment is put into jobless activities, as for example Facebook’s purchase of Whatsapp demonstrates. US$17 billion was paid for a company with only 55 employees. Normation and stimulus are needed to direct research and development from a focus on pushing back labour costs via automatization, towards labour intensive innovations that push back energy and environmental costs.

A second fundamental problem with current employment policies, is that the recipes are reactive. They do not focus on the structural conditions, but they take external factors – like economic globalization and the financial system – for granted. Employment is subordinate to the higher aim of GDP growth, and policies only focus on the individual supply of labour wherein employees and job seekers have to adapt to the needs of the market.

This economistic vision does not only apply to right-wing politicians. In the past two decades, this vision has been fully adopted by most labour parties in Europe via their ‘Third Way’ approaches. They accept the current globalization as a given fact. They see monetary stability (a limited inflation) as core to financial economic policies and see liberalization and flexibilization of the economy as key. The only way the social democrats from 1990s and 2000s differed from their political opponents is that they were willing to compensate the losers and excluded of this economic model a little bit more. Fortunately, it increasingly seems that the search for real alternatives is becoming mainstream. The big attention to income inequality is a clear example of that. However, a coherent and comprehensive political vision and complementary policies is still far away.

The endemic lack of an assertive political programme is becoming more and more problematic. A serious alternative narrative is needed – where politics and policies focus on the creation of a society in which labour serves the individuals and the collective, and dignifies and enriches them. This entails looking for new forms of regulating the market economy, with more direct forms of democratic control and influence on behalf of the interests of workers – not only those with fixed contracts, but all who perform paid or unpaid work. In this respect the archaic organizational forms of the trade union movement, their failure to adapt to new realities and represent the interests of such a broad range of workers, are also part of the problem.

On the website of The Broker, we are beginning the search for alternatives. With this Employment dossier, we deliver a starting point and global overview of numbers, trends, theories and sub-themes that are relevant for such a quest.

The Broker has started an online debate and a live discussion on how to tackle these employment issues, further addressing the insights and conclusions from the articles. The purpose of this debate is to explore the alternative solutions and visions that are needed to deal with the employment issue. How can we create enough jobs and better jobs within the context of globalization? Are the initial policy recommendations, which have emerged from the articles in our dossier, sufficient? Or do they need more elaboration?

We call on our readers to further examine these questions and possible solutions.You can send your contribution to this debate to: debate@thebrokeronline.eu.

Photo credit main picture: FRANK GUIDO